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Low coverage, access, literacy hold Nigeria’s pension system down

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Nigeria’s pension system despite the country’s huge population has ranked low after a global ranking due to low coverage, access to financial services and financial literacy.

Allianz in its second edition Global Pension Report launched recently which analyzes 75 pension systems around the globe using its proprietary Allianz Pension Index (API), says with an overall score of 4.3, the Nigerian pension system is at the bottom of the global rankings.

Other countries in the ranking –Denmark 2.2; The Netherlands 2.6; Sweden 2.6; New Zealand 2.8; USA, Taiwan, Israel –2.9; Belgium 3.0…; and Nigeria 4.3.

According to the report, the reason for concern is still the low coverage of the pension system.

“In addition, access to financial services and financial literacy needs to be further improved to foster private pension provision, especially against the background that private households’ net financial assets are also still rather low in international comparison.”

The report further noted that Nigeria, however, has two big advantages: it (still) has financial leeway as public spending for the elderly is very low and it will remain a very “young” country, as old-age dependency ratio is expected to rise only moderately to 6.8 percent by 2050”.

Read also: Sanlam General Insurance records N11.4bn gross written premium

This is when Nigeria will be set to be one of the countries with the youngest population worldwide, but nonetheless, the sooner reforms are enacted the better, says the report.

In addition to the technical details, such as contribution levels and periods, there is a key adjustment for sustainable and adequate pension systems: the social value of work. “Automation, digitalization and artificial intelligence are enabling universal access to education and thus new concepts of work.

The dissolution of the rigid dichotomy between employment and retirement currently exists only for a privileged few. The pension system of the future starts by rethinking the world of education and work for all,” said Ludovic Subran, chief economist at Allianz.

After Covid 19, war and the energy crisis, the fiscal space of most countries has narrowed even further, stating that the need for pension reforms is not in dispute, but rhetoric is rarely followed by powerful action: work on the pension construction site is not progressing.

In fact, only a few countries – such as France or China – have managed to significantly improve their scoring through reforms.

France almost exemplifies the political dilemma of such reforms, as they turn the usual political economy on its head: Instead of handing out benefits today in exchange for impositions later, they require impositions today to avoid cuts later.

The few pension systems that are doing well today – notably Denmark, the Netherlands and Sweden, with an overall score well below 3, therefore also have one thing in common- they set the course for sustainability very early on, at a time when the demographic bomb was still ticking quietly.

They can therefore serve as a model for many developing countries, which also still have a window of opportunity to stabilize their pension systems. In many other countries, however, it will hardly be possible without painful reforms.

Allianz services 49 markets in Africa through offices in Cameroon, Côte d’Ivoire, Ghana, Kenya, Madagascar, Morocco, Nigeria, Senegal, Uganda, Burundi, Egypt and South Africa – through Allianz Global Corporate & Specialty.